May 2010

How to strike a deal

Model Mine Development Agreement a framework for governments and mining companies

By
H. Ednie

Mining companies and governments often encounter difficulties in negotiating agreements when the host country lacks a mature mining code. By the end of the year, however, such problems could be history, thanks in part to the creation of the Model Mine Development Agreement (MMDA).

The MMDA, initiated in 2008, is the brainchild of the Mining Law Committee of the International Bar Association’s Section on Energy, Environment, Natural Resources and Infrastructural Law (SEERIL). Unlike in many other industries, in mining, there are no pro forma standard contracts to follow. Every mining agreement is unique. The MMDA project aims to identify common points with a view to enabling governments to understand what is usually included in mining-related agreements.

“We’re building a compendium of existing practices,” explains Bob Bassett, head of the MMDA working group and a partner at Holland and Hart LLP in Denver, Colorado. “We’re not saying what you should do, but rather, what you can do.”

The MMDA is a draft model that can be used by mining companies and host governments, especially for mining projects located in jurisdictions without a mature mining code, or where an existing mining code needs to be supplemented by private agreement. The intention is not to have a nation adopt the model. Rather, the MMDA is simply another tool to consider, built to be easily amended for inclusion in a mining law or to be used as a guideline.

To craft the model, an eight-member working group, comprised of legal and policy experts from around the world and an advisory committee of 50 lawyers, government experts, civil society representatives and academics, was assembled. Some 50 sample agreements were gathered from projects across the globe. These agreements were then analyzed for their approaches to tenure, financial conditions, rights and obligations, community-related conditions and contract terms. Each category was then further broken down. For example, the financial category was subdivided into royalties and duties, financing projects, records, statements, currencies, audits and other items.

For the creative deconstruction phase of the project, clauses related to each analyis category were pulled out and examined individually. The team judged the value and utility of each. The first draft of the MMDA was cobbled together from the best of the analyzed clauses.

Industry, government and civil society representatives are all providing input. “The first draft is being circulated to the advisory committee members for real, nuts-and-bolts practical input,” Bassett explains. “The aim for the final product is to come up with an agreement that has very simple language, dealing with all types of information typically involved.” He added that the product itself will probably be a very simple form contract with links to excerpts from actual agreements. “For example, take the clause that says the law of the country in which a mine is located will govern the project,” he explains, “It will be clickable, to access links to supporting documents — clauses and commentary — to share ideas and further details other countries and companies have included in their agreements.”

The draft MMDA was presented at the SEERIL meeting on April 25 this year and is now being circulated for advisory input and analysis. The final document is expected to be released at the October meeting of the International Bar Association and to be available on the IBA website.